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D.F. Krause
  D.F.'s Column Archive
June 7, 2006
The Stock Buyers and the Stuff Buyers

There’s stuff and there’s stock. These are two entirely different categories of things you can buy. And the people who buy stuff are as different from the people who buy stock as Nipsey Russell is from Jayne Russell.


People who buy stuff pick out items they will use in the course of their daily lives. Whether they drive to the store to buy the stuff or purchase it online, the stuff they buy is chosen for its utility to their day-to-day needs.


People who buy stock are different. Oh, sure, they buy stuff too. They need stuff. But when they’re buying stuff, they’re only taking a temporary break from buying stock, probably because they’ve run out of food or detergent with which to wash their socks. They really want to just get back to buying stock, which they do through sophisticated, licensed institutions filled with weird people just like them.


We need these people. Someone needs to capitalize American industry. So I mean it as no indictment when I call them weird. It’s just that they’re weird. Vive la difference!


This distinction between stock buyers and stuff buyers is really only important when a company that sells both stuff and stock faces the task of making sure it is correctly telling the difference. And that brings us Vonage.


Vonage, the “Internet phone” company that has silly commercials that say “people do stupid things,” did not think it was doing a stupid thing when it issued an Initial Public Offering. But the institutional investors who usually drive the success or failure of IPOs were not jazzed about Vonage.


Why? Who knows? Maybe the issue was clarity. Internet or phone? Which is it? Maybe the commercials featuring the guy doing the robot dance and the mascot stuck in the revolving door left them shaking their heads and asking “Huh?” They certainly had that effect on the rest of us.


At any rate, institutional investors weren’t biting on Vonage stock, and since Vonage had probably already decided how to spend the expected $531 million in capital, company executives started looking for a Plan B.


I know! someone said. What about our customers?


Yep, the stuff buyers. The line was being breached. Vonage decided to set aside 4.2 million IPO shares exclusively for its customers at a price of $17 per share. Surely the people who buy our stuff will buy our stock, they figured.


Did you know you’re not supposed to do this? Apparently Vonage didn’t. But securities law says you can’t recommend someone buy your securities unless you have ascertained that the person is a good candidate to benefit from the purchase. So just because you like buying “internet phone” service (whatever that means), it doesn’t necessarily mean the stock of the “internet phone” company is a good investment for you.


Just because you like to drink Coke doesn’t mean you should own their stock, does it? Same idea applies here.


Now, it’s entirely possible that no one would really care all that much, except for the tricky little issue of the $17 stock having plunged to less than $12. This has left a fair number of Vonage customers, who made purchase agreements but haven’t actually paid for the stock yet, refusing to do so on the grounds that they were given bad investment advice by Vonage. Many of these customers have now joined a class action suit asserting this claim in federal court.


Vonage, in return, is trying to force its customers to ante up.


So let’s review: Company seeking growth and needing capital convinces its stuff buyers to become its stock buyers (because the real stock buyers aren’t buying), then when the stock tanks, the customers sue the company and the company tries to force its customers to pay for stock they wish they had never agreed to buy.


American executives, take note. These people over here are stock buyers. They’re the ones who are wearing suits and looking at their Blackberrys on the beach. Sell your stock to them. Now those people, over there, who are walking around with your products in bags – those are stuff buyers. Sell them your stuff and thank them.


Why didn’t Vonage understand this? Well, people do stupid things.


© 2006 North Star Writers Group. May not be republished without permission.


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